GCC Quarterly Review - Q1 2017

The GCC Quarterly Review briefly summarises a selection of the major developments in the laws of the Gulf Cooperation Council ("GCC") region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) in the first quarter of 2017, with links to further reading, where available.

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New regulatory regime for promoting foreign securities and introducing financial services in the UAE: The United Arab Emirates (“UAE”) Securities and Commodities Authority (“SCA”) Decision No. 3/R.M of 2017 concerning Promoting and Introducing Regulations (“PIRs”) came into force on 1 February 2017. The PIRs represent a more restrictive regulatory approach in this area, in particular in relation to the treatment of the promotion of foreign securities. The PIRs restrict an entity which is not licensed by the SCA from:

  • promoting financial products (which includes a broad range of domestic and foreign financial products). Any financial products to be promoted must be approved by the SCA; or
  • “introducing” financial services or activities,

in the UAE, unless an exemption applies. There are various exemptions, including for Qualified Investors (which include institutional investors, licensed financial institutions and government bodies or entities wholly owned by them – but does not include natural persons e.g. high net worth individuals) and reverse solicitation. The PIRs set out a range of general obligations on licensed “Promoters” and “Introducers”. Sanctions for breach of PIRs by a Promoter include warning, fine, suspension and/or cancellation of licence by SCA (which in the latter case is published in local newspapers). Similar sanctions may also be imposed on employees of the Promoter. The SCA also has the discretion to stop or suspend the promotion or introduction activities.

Changes to tax law in Oman: Omani Royal Decree No.9 of 2017 has introduced some significant changes to the tax regime in Oman. Key changes include an increase in the income tax rate from 12 per cent to 15 per cent for financial years beginning 1 January 2017, 10 per cent withholding tax on dividends on shares and any interest paid or credited to any foreign person (from 27 February 2017), the removal of the OMR 30,000 tax-free threshold (in force 1 January 2017), an increase in the rate of corporation tax to 15% (in force 1 January 2017), withholding tax payable on the extended categories of payments of dividends or interest or performance of services (in force 27 February 2017) and revised rules on taxation of Islamic financing transactions (due to come into force 1 January 2018).

Arbitrators sitting in the UAE may face criminal liability for breach of duties: Arbitrators sitting on arbitrations in the UAE may now face criminal liability where they breach duties of impartiality and integrity, following revisions to Article 257 of the Penal Code (Federal Law No. 3 of 1987) made by Federal Decree Law No. 7 of 2016 to make arbitrators subject to it. The revised Article 257 also alters the scope of the duty owed from a duty of honesty, to duties of impartiality and integrity, and appears to no longer require a conscious or positive intention to commit an offence. The term of imprisonment may be between three and 15 years. The Penal Code applies in all of the emirates and free zones in the UAE, including the Dubai International Financial Centre and Abu Dhabi Global Market. Arbitrators are likely to be concerned at the prospect of the risk of criminal complaints being filed when sitting in the UAE.

UAE Central Bank issues capital adequacy regulations in line with Basel III: The Central Bank of the UAE has issued Circular No. 52/2017 to regulate the capital adequacy of banks operating in the UAE in line with revised rules outlined by the Basel Committee on Banking Supervision in Basel III. The Circular came into force on 1 February 2017. Implementation will be phased, with the requirements partially in force during 2017 and in full force by 2019. Banks operating in the UAE must comply with minimum capital requirements set out in the Circular (which are, in some cases, higher than the Basel III requirements). In addition to the minimum capital requirements, additional requirements may be imposed in some circumstances, including a Capital Conservation Buffer, a Countercyclical Buffer (which will be imposed at times of excess credit growth, at the discretion of the UAE Central Bank) and an additional capital buffer may be required for Domestic Systemically Important Banks (banks concerned will be notified). The Circular also imposes disclosure and reporting requirements. The Circular forms part of a package of measures introduced by the UAE Central Bank to phase in Basel III in the UAE, including Circular No.33/2015 on liquidity regulations and UAE Notice No.300/2013 on large exposure limits.

New arbitration law comes into force in Qatar: In March, a new arbitration law came into force in Qatar, which replaces the arbitration-related provisions of the Civil and Commercial Code of Procedure 1990 with a stand-alone arbitration law based on the United Nations Commission on International Trade (UNCITRAL) Model Law on International Commercial Arbitration. The arbitration law applies to arbitration proceeding seated in Qatar or, if overseas, where the parties have agreed that the law should apply. It introduces new provisions addressing procedural efficiencies, clarifying the process for the recognition and enforcement of foreign arbitral awards in Qatar, defining the scope of non-arbitrable matters, arbitrator liability and when an application to annul an award can be made.

UAE Commercial Companies Law penalty for non-compliance clarified: The deemed dissolution penalty for limited liability companies (“LLCs”) and partnerships incorporated prior to 1 March 2017 which have failed to “adjust their position” to comply with Federal Law No.2 of 2015 (the “Companies Law”) appears to longer apply to such LLCs and partnerships, according to Ministerial Decision No. 694 of 2016 (the “Decision”). It is our understanding that in practice the term “adjust their position” means amending their Memoranda of Association to comply with the Companies Law, by the deadline of 30 June 2017 (the original transitional period ending on 30 June 2016 having been extended by the Cabinet).

Instead, the Decision provides that any such non-compliant LLCs and partnerships will remain in existence and their Memoranda of Association will remain effective. Any provision of their existing memoranda which does not comply with the Companies Law shall be deemed to have been replaced by the appropriate provision of the Companies Law. However, best practice remains for relevant LLCs and partnerships to amend their Memoranda to comply with the Companies Law. It is not clear at this stage whether other penalties set out in the Companies Law for late amendment to the Memorandum of Associations (including fines) may continue to apply. It appears that public and private joint stock companies are nonetheless still required to comply with the requirement to “adjust their position” to comply with the Companies Law by 30 June 2017. In particular, public joint stock companies are required to use the template Articles of Association published by the Securities and Commodities Authority in its Circular No.88 of 2016. The Decision does not apply to companies that are exempt from the Companies Law.

Dubai Judicial Committee decisions on conflicts of jurisdiction between the Dubai Courts and the DIFC Courts: The new Judicial Committee for the Dubai Courts and the DIFC Courts, which has authority to rule on conflicts of jurisdiction and conflicts of judgments between the two courts, has issued a suite of decisions since it was established in June 2016 by Dubai Decree No 19/2016 (read more).

Two of the Committee’s decisions in the public domain relate to applications in the DIFC Courts to recognise and enforce arbitral awards issued by the Dubai International Arbitration Centre (DIAC) onshore in Dubai, in each case where there were simultaneous proceedings in the Dubai courts to annul the award (Daman Real Capital Partners Co LLC v Oger Dubai LLC (Cassation No. 1/2016) and Dubai Waterfront LLC v Chenshan Liu (Cassation No. 2/2016)). In the majority decisions in these cases, the Committee held that the cases should be referred back to the Dubai Courts, which has procedural jurisdiction to annul the award, and that the DIFC Courts should cease from entertaining the case. Two further Committee decisions concerned applications in the DIFC Courts to recognise and enforce a foreign court judgment and a foreign arbitral award onshore in the UAE, using the DIFC Court as a conduit (Marine Logistics Solutions LLC and another v Wadi Waoraya LLC and others (Cassation No.3/2016) and Gulf Navigation Holding PJSC v DNB Bank ASA (Cassation No.5/2016)). In each of these cases, the Committee decided that it did not have jurisdiction to hear the cases according to Dubai Decree No 19/2016 as there was no conflict of jurisdiction, there being proceedings only in the DIFC Courts and no parallel proceedings in the Dubai Courts. Read more about cases where parties have sought to use DIFC as a gateway to enforcement of foreign court judgments and foreign arbitral awards in Dubai here and here